Not sure how this one slipped past me a few months ago. Luckily, a few others I follow were paying closer attention than I was and have flagged this for red thumb status. Although I’m a little late to the game, so to speak, I’ll still think I’ll end up with quite a few points on this down thumb. Here are some of the greatest hits from their filings:

“We were incorporated in Delaware on May 31, 2000, under our original name, Hosting Site Network, Inc. On May 12, 2008, we changed our name to Single Touch Systems Inc. and on September 26, 2014, we changed our name to SITO Mobile, Ltd. On July 24, 2008, we acquired all of the outstanding shares of SITO Mobile Solutions, Inc., which was incorporated in Nevada on April 2, 2002.”

I don’t see a reverse split in their history but didn’t really bother to dig back that far to verify how they went from “Hosting Site Network” to “Single Touch Systems”.

“Our Note to Fortress bears interest at a rate equal to 9% plus the greater of LIBOR or 1%, of which 2% per annum of the interest shall be paid through the issuance of shares of common stock at maturity. The term of the Note is 42 months and we began making monthly interest payments in October 2014. In October 2015, we began making monthly amortization payments on the Note, each in the amount of $333,334. We agreed to apply 85% of any revenues from new licensing and royalty arrangements that we generate using our patents (“Monetization Revenues”) to the payment of accrued and unpaid interest on, and then to repay outstanding principal (at par) of, the Note until all amounts due with respect to the Note has been paid in full. After the repayment of the Note, we will pay Fortress up to 50% of Monetization Revenues totaling (i) $5,000,000, if paid in full prior to March 31, 2018 and (ii) $7,500,000 thereafter. In addition, we must also pay $350,000 to Fortress upon repayment of the Note.”

That seems to be a seriously bad arrangement. I know it’s tough to get funding, but those are some pretty awful terms.

“On July 29, 2015, the Company filed an amendment to the Certificate of Incorporation to effect a 1-for-10 reverse split of its issued and outstanding common stock. The reverse split became effective in the market on July 30, 2015. Unless otherwise noted, all references herein to the number of common shares, price per common share or weighted average number of common shares outstanding have been adjusted to reflect this reverse stock split on a retroactive basis.”

So, if you dig into their history, you can quickly see where they haven’t been shy to issue new stock. It’s apparent in their filings that they have used equity to fund quite a few new “adventures”.

“During the three months December 31, 2015, two customers accounted for 40% of our revenue, comprised of 22% from contracts with five customers covered under our master services agreement with AT&T, and 18% from multiple advertising contracts under one media placement customer.”

This scares me. Two customers make up 40% of their revenue? That is very, very high. If one bad thing happens with the AT&T contract, this stock gets flushed. I also noticed their receivables have shot up from $3.9MM to $6.3MM in the past four quarters. While the revenue growth has also moved higher, that is a pretty huge amount of growth in a short period of time. There are several other thing I noticed, but this seems to be enough to make a red thumb case on this small stub.